EXHIBIT A
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
Original Issue Date: May 31, 2006
Original Conversion Price (subject to adjustment herein): $0.60
$2,000,000
10% SENIOR SECURED CONVERTIBLE NOTE
DUE MAY 31, 2009
THIS NOTE is one of a series of duly authorized and issued 10% Senior
Secured Convertible Notes of Liska Biometry, inc., a Florida corporation, having
a principal place of business at 100 Main Street, Dover, NH 03820 (the
"Company"), designated as its 10% Senior Secured Convertible Note, due May 31,
2009 (the "Note(s)").
FOR VALUE RECEIVED, the Company promises to pay to CAMOFI Master LDC or
its registered assigns (the "Holder"), the principal sum of $2,000,000 on May
31, 2009 or such earlier date as the Notes are required or permitted to be
repaid as provided hereunder (the "Maturity Date"), and to pay interest to the
Holder on the aggregate unconverted and then outstanding principal amount of
this Note in accordance with the provisions hereof. This Note is subject to the
following additional provisions:
Section 1. Definitions. For the purposes hereof, in addition to the terms
defined elsewhere in this Note: (a) capitalized terms not otherwise defined
herein have the meanings given to such terms in the Purchase Agreement, and (b)
the following terms shall have the following meanings:
"Alternate Consideration" shall have the meaning set forth in
Section 5(e)(iii).
"AMEX" shall mean the American Stock Exchange LLC.
"Business Day" means any day except Saturday, Sunday and any day
which shall be a federal legal holiday in the United States or a day on
which banking institutions in the State of New York are authorized or
required by law or other government action to close.
"Change of Control Transaction" means the occurrence of any of (i)
an acquisition after the date hereof by an individual or legal entity or
"group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange
Act) of effective control (whether through legal or beneficial ownership
of capital stock of the Company, by contract or otherwise) of in excess of
33% of the voting securities of the Company, or (ii) a replacement at one
time or within a three year period of more than one-half of the members of
the Company's board of directors which is not approved by a majority of
those individuals who are members of the board of directors on the date
hereof (or by those individuals who are serving as members of the board of
directors on any date whose nomination to the board of directors was
approved by a majority of the members of the board of directors who are
members on the date hereof), or (iii) Christopher LeClerc or Charles Benz
shall no longer be employed by the Company as Chief Executive Officer on a
full time basis, or (iv) the execution by the Company of an agreement to
which the Company is a party or by which it is bound, providing for any of
the events set forth above in (i) or (ii).
"Common Stock" means the common stock, no par value, of the Company
and stock of any other class into which such shares may hereafter have
been reclassified or changed.
"Conversion Date" shall have the meaning set forth in Section 4(a)
hereof.
"Conversion Price" shall have the meaning set forth in Section 4(b).
"Conversion Shares" means the shares of Common Stock issuable upon
conversion of Notes or as payment of interest in accordance with the terms
hereof.
"Effectiveness Date" shall have the meaning given to such term in
the Registration Rights Agreement.
"Effectiveness Period" shall have the meaning given to such term in
the Registration Rights Agreement.
"Equity Conditions" shall mean, during the period in question, (i)
the Company shall have duly honored all conversions and redemptions
scheduled to occur or occurring by virtue of one or more Notice of
Conversions, if any, (ii) all liquidated damages and other amounts owing
in respect of the Notes shall have been paid; (iii) there is an effective
Registration Statement (or, in the case of the shares issuable upon
conversion of the Notes, the Holder may resell such shares without regard
to the volume limitations under Rule 144(k)) pursuant to which the Holder
is permitted to utilize the prospectus thereunder to resell all of the
shares issuable pursuant to the Transaction Documents (and the Company
believes, in good faith, that such effectiveness will continue
uninterrupted for the foreseeable future), (iv) the Common Stock is
trading on the Trading Market and all of the shares issuable pursuant to
the Transaction Documents are listed for trading on a Trading Market (and
the Company believes, in good faith, that trading of the Common Stock on a
Trading Market will continue uninterrupted for the foreseeable future),
(v) there is a sufficient number of authorized but unissued and otherwise
unreserved shares of Common Stock for the issuance of all of the shares
issuable pursuant to the Transaction Documents, (vi) there is then
existing no Event of Default or event which, with the passage of time or
the giving of notice, would constitute an Event of Default, (vii) all of
the shares issued or issuable pursuant to the transaction proposed would
not violate the limitations set forth in Section 4(c), (viii) no public
announcement of a pending or proposed Fundamental Transaction, Change of
Control Transaction or acquisition transaction has occurred that has not
been consummated and (ix) the closing price for the Common Stock is at
least 115% of the Conversion Price (as adjusted).
"Event of Default" shall have the meaning set forth in Section 8.
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"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fundamental Transaction" shall have the meaning set forth in
Section 5(e)(iii) hereof.
"Interest Conversion Rate" means 85% of the volume-weighted average
closing price for the 10 Trading Days immediately prior to the applicable
Interest Payment Date.
"Late Fees" shall have the meaning set forth in the second paragraph
to this Note.
"Mandatory Prepayment Amount" for any Notes shall equal the sum of
(i) 125% of the principal amount of Notes to be prepaid, plus all accrued
and unpaid interest thereon, and (ii) all other amounts, costs, expenses
and liquidated damages due in respect of such Notes.
"Monthly Conversion Price" shall have the meaning set forth in
Section 6(a) hereof.
"Monthly Redemption" shall mean the redemption of the Note pursuant
to Section 6(a) hereof.
"Monthly Redemption Amount" shall mean, as to a Monthly Redemption,
1/27th of the original principal amount in the aggregate.
"Monthly Redemption Date" means the 1st of each month, commencing
February 2007 and ending upon the full redemption of this Note.
"Original Issue Date" shall mean the date of the first issuance of
the Notes regardless of the number of transfers of any Note and regardless
of the number of instruments which may be issued to evidence such Note.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"Purchase Agreement" means the Securities Purchase Agreement, dated
as of May 31, 2006, to which the Company and the original Holder are
parties, as amended, modified or supplemented from time to time in
accordance with its terms.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date of the Purchase Agreement, to which the
Company and the original Holder are parties, as amended, modified or
supplemented from time to time in accordance with its terms.
"Registration Statement" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement, covering
among other things the resale of the Conversion Shares and naming the
Holder as a "selling stockholder" thereunder.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"Sogedex" means Sogedex, a French corporation.
"Special Adjustment Provisions" means (i) the closing of the Sogedex
transaction by the Company, (ii) the sale of equity securities by the
Company with proceeds of at least $4 million at an effective price
(pre-split, etc.) of at least $0.60 per share, (iii) the closing bid price
for the Common Stock on the 320th day from the Original Issue Date is
greater than the then applicable Conversion Price and (iv) the VWAP for
the twenty days immediately prior to the 320th day from the Original Issue
Date is greater than the then applicable Conversion Price.
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"Subsidiary" shall have the meaning given to such term in the
Purchase Agreement.
"Trading Day" means a day on which the Common Stock is traded on a
Trading Market.
"Trading Market" means the following markets or exchanges on which
the Common Stock is listed or quoted for trading on the date in question:
the Nasdaq SmallCap Market, the American Stock Exchange, the New York
Stock Exchange, the Nasdaq National Market or the OTC Bulletin Board.
"Transaction Documents" shall have the meaning set forth in the
Purchase Agreement.
"Qualified Equity Offering" means an equity financing for the
account of the Company in which shares of common stock, or securities,
directly or indirectly, convertible into or exchangeable or exercisable
for shares of common stock are issued, which financing results in
cumulative aggregate proceeds to the Company of at least $15 million.
"VWAP" means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or
quoted on a Trading Market, the daily volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the primary
Trading Market on which the Common Stock is then listed or quoted as
reported by Bloomberg Financial L.P. (based on a Trading Day from 9:30
a.m. EST to 4:02 p.m. Eastern Time) using the VAP function; (b) if the
Common Stock is not then listed or quoted on the Trading Market and if
prices for the Common Stock are then reported in the "Pink Sheets"
published by the Pink Sheets, LLC (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid
price per share of the Common Stock so reported; or (c) in all other
cases, the fair market value of a share of Common Stock as determined by a
nationally recognized-independent appraiser selected in good faith by
Holders holding a majority of the principal amount of Notes then
outstanding.
Section 2. Interest.
a) Payment of Interest in Cash or Kind. The Company shall pay
interest to the Holder on the aggregate unconverted and then outstanding
principal amount of this Note at the rate of 10% per annum, payable
monthly in arrears beginning on the first such date after the Original
Issue Date, on each Conversion Date (as to that principal amount then
being converted), on the Maturity Date (except that, if any such date is
not a Business Day, then such payment shall be due on the next succeeding
Business Day) and on each Monthly Redemption Date (as to that principal
amount then being redeemed) (each such date, an "Interest Payment Date"),
in cash or shares of Common Stock at the Interest Conversion Rate, or a
combination thereof; provided, however, payment in shares of Common Stock
may only occur if during the 10 Trading Days immediately prior to the
applicable Interest Payment Date all of the Equity Conditions have been
met, the payment in shares of Common Stock would not exceed 25% of the
volume for any of the previous 10 Trading Days and the Company shall have
given the Holder notice in accordance with the notice requirements set
forth below.
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b) Company's Election to Pay Interest in Kind. Subject to the terms
and conditions herein, the decision whether to pay interest hereunder in
shares of Common Stock or cash shall be at the discretion of the Company.
Should the Company elect to pay interest in kind, it shall be paid in
registered shares of Common Stock valued at 85% of the volume-weighted
average closing price for the 10 days prior to the interest payment date.
Not less than 10 Trading Days prior to each Interest Payment Date, the
Company shall provide the Holder with written notice of its election to
pay interest hereunder either in cash or shares of Common Stock (the
Company may indicate in such notice that the election contained in such
notice shall continue for later periods until revised). Within 10 Trading
Days prior to an Interest Payment Date, the Company's election (whether
specific to an Interest Payment Date or continuous) shall be irrevocable
as to such Interest Payment Date. Subject to the aforementioned
conditions, failure to timely provide such written notice shall be deemed
an election by the Company to pay the interest on such Interest Payment
Date in cash.
c) Interest Calculations. Interest shall be calculated on the basis
of a 360-day year and shall accrue daily commencing on the Original Issue
Date until payment in full of the principal sum, together with all accrued
and unpaid interest and other amounts which may become due hereunder, has
been made. Interest shall be compounded monthly. Payment of interest in
shares of Common Stock shall otherwise occur pursuant to Section 4(d)(ii)
and only for purposes of the payment of interest in shares, the Interest
Payment Date shall be deemed the Conversion Date. Interest shall cease to
accrue with respect to any principal amount converted, provided that the
Company in fact delivers the Conversion Shares within the time period
required by Section 4(d)(ii) and if not so delivered, interest will accrue
until delivery of the Conversion Shares. Interest hereunder will be paid
to the Person in whose name this Note is registered on the records of the
Company regarding registration and transfers of Notes (the "Note
Register"). Except as otherwise provided herein, if at any time the
Company pays interest partially in cash and partially in shares of Common
Stock, then such payment shall be distributed ratably among the Holders
based upon the principal amount of Notes held by each Holder.
d) Late Fee. All overdue accrued and unpaid interest to be paid
hereunder shall entail a late fee at the rate of 20% per annum (or such
lower maximum amount of interest permitted to be charged under applicable
law) ("Late Fee") which will accrue daily, from the date such interest is
due hereunder through and including the date of payment. Notwithstanding
anything to the contrary contained herein, if on any Interest Payment Date
the Company has elected to pay interest in Common Stock and is not able to
pay accrued interest in the form of Common Stock because it does not then
satisfy the conditions for payment in the form of Common Stock set forth
above, then, the Company shall pay cash.
e) Optional Prepayment. The Company shall have the right to prepay,
in cash, all or a portion of the Notes at any time at 115% of the
principal amount thereof plus accrued interest to the date of repayment.
The Company shall give the Holder at least ten (10) day's prior written
notice of its intention to prepay all or a portion of the Note, during
which time the Holder shall have the right to convert any portion of the
Note into Common Stock.
f) Mandatory Repayment. If the Company (i) engages in a Qualified
Equity Offering, (ii) shall be a party to any Change of Control
Transaction or Fundamental Transaction or (iii) shall agree to sell or
dispose any of its assets in one or more transactions (whether or not such
sale would constitute a Change of Control Transaction), the Company will
be required to repay, in cash, the aggregate principal amount of the Notes
not converted to Common Stock at 115% of the principal amount thereof to
such date of repayment.
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Section 3. Registration of Transfers and Exchanges.
a) Different Denominations. This Note is exchangeable for an equal
aggregate principal amount of Notes of different authorized denominations
as requested by the Holder surrendering the same. No service charge will
be made for such registration of transfer or exchange.
b) Investment Representations. This Note has been issued subject to
certain investment representations of the original Holder set forth in the
Purchase Agreement and may be transferred or exchanged only in compliance
with the Purchase Agreement and applicable federal and state securities
laws and regulations.
c) Reliance on Note Register. Prior to due presentment to the
Company for transfer of this Note, the Company and any agent of the
Company may treat the Person in whose name this Note is duly registered on
the Note Register as the owner hereof for the purpose of receiving payment
as herein provided and for all other purposes, whether or not this Note is
overdue, and neither the Company nor any such agent shall be affected by
notice to the contrary.
Section 4. Conversion.
a) Voluntary Conversion. At any time after the Original Issue Date
until this Note is no longer outstanding, this Note shall be convertible
into shares of Common Stock at the option of the Holder, in whole or in
part at any time and from time to time (subject to the limitations on
conversion set forth in Section 4(c) hereof). The Holder shall effect
conversions by delivering to the Company the form of Notice of Conversion
attached hereto as Annex A (a "Notice of Conversion"), specifying therein
the principal amount of Notes to be converted and the date on which such
conversion is to be effected (a "Conversion Date"). If no Conversion Date
is specified in a Notice of Conversion, the Conversion Date shall be the
date that such Notice of Conversion is provided hereunder. To effect
conversions hereunder, the Holder shall not be required to physically
surrender Notes to the Company unless the entire principal amount of this
Note plus all accrued and unpaid interest thereon has been so converted.
Conversions hereunder shall have the effect of lowering the outstanding
principal amount of this Note in an amount equal to the applicable
conversion. The Holder and the Company shall maintain records showing the
principal amount converted and the date of such conversions. The Company
shall deliver any objection to any Notice of Conversion within 3 Business
Days of receipt of such notice. In the event of any dispute or
discrepancy, the records of the Holder shall be controlling and
determinative in the absence of manifest error. The Holder and any
assignee, by acceptance of this Note, acknowledge and agree that, by
reason of the provisions of this paragraph, following conversion of a
portion of this Note, the unpaid and unconverted principal amount of this
Note may be less than the amount stated on the face hereof. However, at
the Company's request, the Holder shall surrender the Note to the Company
within five (5) Trading Days following such request so that a new Note
reflecting the correct principal amount may be issued to Holder.
b) Conversion Price. The conversion price in effect on any
Conversion Date (subject to adjustment herein) shall be equal to $0.60 per
share.
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c) Conversion Limitations; Holder's Restriction on Conversion. The
Company shall not effect any conversion of this Note, and the Holder shall
not have the right to convert any portion of this Note, pursuant to
Section 4(a) or otherwise, to the extent that after giving effect to such
conversion, the Holder (together with the Holder's affiliates), as set
forth on the applicable Notice of Conversion, would beneficially own in
excess of 4.99% of the number of shares of the Common Stock outstanding
immediately after giving effect to such conversion. For purposes of the
foregoing sentence, the number of shares of Common Stock beneficially
owned by the Holder and its affiliates shall include the number of shares
of Common Stock issuable upon conversion of this Note with respect to
which the determination of such sentence is being made, but shall exclude
the number of shares of Common Stock which would be issuable upon (A)
conversion of the remaining, nonconverted portion of this Note
beneficially owned by the Holder or any of its affiliates and (B) exercise
or conversion of the unexercised or nonconverted portion of any other
securities of the Company (including, without limitation, any other Notes
or the Warrants) subject to a limitation on conversion or exercise
analogous to the limitation contained herein beneficially owned by the
Holder or any of its affiliates. Except as set forth in the preceding
sentence, for purposes of this Section 4(c), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Exchange Act. To the
extent that the limitation contained in this section applies, the
determination of whether this Note is convertible (in relation to other
securities owned by the Holder) and of which a portion of this Note is
convertible shall be in the sole discretion of such Holder. To ensure
compliance with this restriction, the Holder will be deemed to represent
to the Company each time it delivers a Notice of Conversion that such
Notice of Conversion has not violated the restrictions set forth in this
paragraph and the Company shall have no obligation to verify or confirm
the accuracy of such determination. For purposes of this Section 4(c), in
determining the number of outstanding shares of Common Stock, the Holder
may rely on the number of outstanding shares of Common Stock as reflected
in (x) the Company's most recent Form 10-QSB or Form 10-KSB, as the case
may be, (y) a more recent public announcement by the Company or (z) any
other notice by the Company or the Company's Transfer Agent setting forth
the number of shares of Common Stock outstanding. Upon the written or oral
request of the Holder, the Company shall within two Trading Days confirm
orally and in writing to the Holder the number of shares of Common Stock
then outstanding. In any case, the number of outstanding shares of Common
Stock shall be determined after giving effect to the conversion or
exercise of securities of the Company, including this Note, by the Holder
or its affiliates since the date as of which such number of outstanding
shares of Common Stock was reported. The provisions of this Section 4(c)
may be waived by the Holder upon, at the election of the Holder, not less
than 61 days' prior notice to the Company, and the provisions of this
Section 4(c) shall continue to apply until such 61st day (or such later
date, as determined by the Holder, as may be specified in such notice of
waiver).
d) Mechanics of Conversion
i. Conversion Shares Issuable Upon Conversion of Principal
Amount. The number of shares of Common Stock issuable upon a
conversion hereunder shall be determined by the quotient obtained by
dividing (x) the outstanding principal amount of this Note to be
converted by (y) the Conversion Price. i.
ii. Delivery of Certificate Upon Conversion. Not later than
three Trading Days after any Conversion Date, the Company will
deliver to the Holder (A) a certificate or certificates representing
the Conversion Shares which shall be free of restrictive legends and
trading restrictions (other than those required by the Purchase
Agreement) representing the number of shares of Common Stock being
acquired upon the conversion of Notes (including, if so timely
elected by the Company, shares of Common Stock representing the
payment of accrued interest) and (B) a bank check in the amount of
accrued and unpaid interest (if the Company is required to pay
accrued interest in cash). The Company shall, if available and if
allowed under applicable securities laws, use its best efforts to
deliver any certificate or certificates required to be delivered by
the Company under this Section electronically through the Depository
Trust Corporation or another established clearing corporation
performing similar functions.
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iii. Failure to Deliver Certificates. If in the case of any
Notice of Conversion such certificate or certificates are not
delivered to or as directed by the applicable Holder by the third
Trading Day after a Conversion Date, the Holder shall be entitled by
written notice to the Company at any time on or before its receipt
of such certificate or certificates thereafter, to rescind such
conversion, in which event the Company shall immediately return the
certificates representing the principal amount of Notes tendered for
conversion.
iv. Obligation Absolute; Partial Liquidated Damages. If the
Company fails for any reason to deliver to the Holder such
certificate or certificates pursuant to Section 4(d)(ii) by the
third Trading Day after the Conversion Date, the Company shall pay
to such Holder, in cash, as liquidated damages and not as a penalty,
for each $1000 of principal amount being converted, $5 per Trading
Day (increasing to $10 per Trading Day after 5 Trading Days after
such damages begin to accrue) for each Trading Day after such third
Trading Day until such certificates are delivered. The Company's
obligations to issue and deliver the Conversion Shares upon
conversion of this Note in accordance with the terms hereof are
absolute and unconditional, irrespective of any action or inaction
by the Holder to enforce the same, any waiver or consent with
respect to any provision hereof, the recovery of any judgment
against any Person or any action to enforce the same, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach
or alleged breach by the Holder or any other Person of any
obligation to the Company or any violation or alleged violation of
law by the Holder or any other person, and irrespective of any other
circumstance which might otherwise limit such obligation of the
Company to the Holder in connection with the issuance of such
Conversion Shares; provided, however, such delivery shall not
operate as a waiver by the Company of any such action the Company
may have against the Holder. In the event a Holder of this Note
shall elect to convert any or all of the outstanding principal
amount hereof, the Company may not refuse conversion based on any
claim that the Holder or any one associated or affiliated with the
Holder of has been engaged in any violation of law, agreement or for
any other reason, unless, an injunction from a court, on notice,
restraining and or enjoining conversion of all or part of this Note
shall have been sought and obtained and the Company posts a surety
bond for the benefit of the Holder in the amount of 150% of the
principal amount of this Note outstanding, which is subject to the
injunction, which bond shall remain in effect until the completion
of arbitration/litigation of the dispute and the proceeds of which
shall be payable to such Holder to the extent it obtains judgment.
In the absence of an injunction precluding the same, the Company
shall issue Conversion Shares or, if applicable, cash, upon a
properly noticed conversion. Nothing herein shall limit a Holder's
right to pursue actual damages or declare an Event of Default
pursuant to Section 8 herein for the Company's failure to deliver
Conversion Shares within the period specified herein and such Holder
shall have the right to pursue all remedies available to it at law
or in equity including, without limitation, a decree of specific
performance and/or injunctive relief. The exercise of any such
rights shall not prohibit the Holders from seeking to enforce
damages pursuant to any other Section hereof or under applicable
law.
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v. Compensation for Buy-In on Failure to Timely Deliver
Certificates Upon Conversion. In addition to any other rights
available to the Holder, if the Company fails for any reason to
deliver to the Holder such certificate or certificates pursuant to
Section 4(d)(ii) by the third Trading Day after the Conversion Date,
and if after such third Trading Day the Holder is required by its
brokerage firm to purchase (in an open market transaction or
otherwise) Common Stock to deliver in satisfaction of a sale by such
Holder of the Conversion Shares which the Holder anticipated
receiving upon such conversion (a "Buy-In"), then the Company shall
(A) pay in cash to the Holder (in addition to any remedies available
to or elected by the Holder) the amount by which (x) the Holder's
total purchase price (including brokerage commissions, if any) for
the Common Stock so purchased exceeds (y) the product of (1) the
aggregate number of shares of Common Stock that such Holder
anticipated receiving from the conversion at issue multiplied by (2)
the actual sale price of the Common Stock at the time of the sale
(including brokerage commissions, if any) giving rise to such
purchase obligation and (B) at the option of the Holder, either
reissue Notes in principal amount equal to the principal amount of
the attempted conversion or deliver to the Holder the number of
shares of Common Stock that would have been issued had the Company
timely complied with its delivery requirements under Section
4(d)(ii). For example, if the Holder purchases Common Stock having a
total purchase price of $11,000 to cover a Buy-In with respect to an
attempted conversion of Notes with respect to which the actual sale
price of the Conversion Shares at the time of the sale (including
brokerage commissions, if any) giving rise to such purchase
obligation was a total of $10,000 under clause (A) of the
immediately preceding sentence, the Company shall be required to pay
the Holder $1,000. The Holder shall provide the Company written
notice indicating the amounts payable to the Holder in respect of
the Buy-In. Notwithstanding anything contained herein to the
contrary, if a Holder requires the Company to make payment in
respect of a Buy-In for the failure to timely deliver certificates
hereunder and the Company timely pays in full such payment, the
Company shall not be required to pay such Holder liquidated damages
under Section 4(d)(iv) in respect of the certificates resulting in
such Buy-In.
vi. Reservation of Shares Issuable Upon Conversion. The
Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of Common Stock
solely for the purpose of issuance upon conversion of the Notes and
payment of interest on the Note, each as herein provided, free from
preemptive rights or any other actual contingent purchase rights of
persons other than the Holders, not less than such number of shares
of the Common Stock as shall (subject to any additional requirements
of the Company as to reservation of such shares set forth in the
Purchase Agreement) be issuable (taking into account the adjustments
and restrictions of Section 5) upon the conversion of the
outstanding principal amount of the Notes and payment of interest
hereunder. The Company covenants that all shares of Common Stock
that shall be so issuable shall, upon issue, be duly and validly
authorized, issued and fully paid, nonassessable and, if the
Registration Statement is then effective under the Securities Act,
registered for public sale in accordance with such Registration
Statement.
vii. Fractional Shares. Upon a conversion hereunder the
Company shall not be required to issue stock certificates
representing fractions of shares of the Common Stock, but may if
otherwise permitted, make a cash payment in respect of any final
fraction of a share based on the VWAP at such time. If the Company
elects not, or is unable, to make such a cash payment, the Holder
shall be entitled to receive, in lieu of the final fraction of a
share, one whole share of Common Stock.
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viii. Transfer Taxes. The issuance of certificates for shares
of the Common Stock on conversion of the Notes shall be made without
charge to the Holders thereof for any documentary stamp or similar
taxes that may be payable in respect of the issue or delivery of
such certificate, provided that the Company shall not be required to
pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion
in a name other than that of the Holder of such Notes so converted
and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such
tax or shall have established to the satisfaction of the Company
that such tax has been paid.
e) Forced Conversion. Notwithstanding anything herein to the
contrary, if the Company has satisfied all AMEX listing requirements
(other than the equity requirement) and to satisfy the equity requirement
the Company is required by the AMEX to convert a portion of the Notes into
equity, the Holders shall convert only that portion of the Notes (not to
exceed 50% of the aggregate principal amount outstanding) into preferred
stock of the Company (the terms of such preferred stock to be satisfactory
to the Holders, but, in any event, the terms shall include the issuance of
additional seven year warrants) that is necessary to satisfy the AMEX. All
other AMEX listing requirements shall be satisfied by the Company prior to
the Forced Conversion. The Company may not affect a Forced Conversion if
such Forced Conversion would result in the Holder's violation of the
ownership limitations set forth in Section 4(c) hereof. Any Forced
Conversion shall be applied ratably to all Holders based on their initial
purchases of Notes pursuant to the Purchase Agreement.
Section 5. Certain Adjustments.
a) Stock Dividends and Stock Splits. If the Company, at any time
while the Notes are outstanding: (A) shall pay a stock dividend or
otherwise make a distribution or distributions on shares of its Common
Stock or any other equity or equity equivalent securities payable in
shares of Common Stock (which, for avoidance of doubt, shall not include
any shares of Common Stock issued by the Company pursuant to this Note,
including as interest thereon), (B) subdivide outstanding shares of Common
Stock into a larger number of shares, (C) combine (including by way of
reverse stock split) outstanding shares of Common Stock into a smaller
number of shares, or (D) issue by reclassification of shares of the Common
Stock any shares of capital stock of the Company, then the Conversion
Price shall be multiplied by a fraction of which the numerator shall be
the number of shares of Common Stock (excluding treasury shares, if any)
outstanding before such event and of which the denominator shall be the
number of shares of Common Stock outstanding after such event. Any
adjustment made pursuant to this Section shall become effective
immediately after the record date for the determination of stockholders
entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a
subdivision, combination or re-classification.
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b) Subsequent Equity Sales. If the Company or any Subsidiary
thereof, as applicable, at any time while this Note is outstanding and
after June 30, 2006 (provided that such equity sales prior to June 30,
2006 are at then current market prices), shall offer, sell, grant any
option to purchase or offer, sell or grant any right to reprice its
securities, or otherwise dispose of or issue (or announce any offer, sale,
grant or any option to purchase or other disposition) any Common Stock or
Common Stock Equivalents entitling any Person to acquire shares of Common
Stock, at an effective price per share less than the then Conversion Price
(such lower price, the "Base Share Price" and such issuances collectively,
a "Dilutive Issuance"), as adjusted hereunder (if the holder of the Common
Stock or Common Stock Equivalents so issued shall at any time, whether by
operation of purchase price adjustments, reset provisions, floating
conversion, exercise or exchange prices or otherwise, or due to warrants,
options or rights per share which is issued in connection with such
issuance, be entitled to receive shares of Common Stock at an effective
price per share which is less than the Conversion Price, such issuance
shall be deemed to have occurred for less than the Conversion Price),
then, the Conversion Price shall be reduced to equal the Base Share Price
and the number of Conversion Shares issuable hereunder shall be increased.
Such adjustment shall be made whenever such Common Stock or Common Stock
Equivalents are issued. The Company shall notify the Holder in writing, no
later than the Trading Day following the issuance of any Common Stock or
Common Stock Equivalents subject to this section, indicating therein the
applicable issuance price, or of applicable reset price, exchange price,
conversion price and other pricing terms (such notice the "Dilutive
Issuance Notice"). For purposes of clarification, whether or not the
Company provides a Dilutive Issuance Notice pursuant to this Section 3(b),
upon the occurrence of any Dilutive Issuance, after the date of such
Dilutive Issuance the Holder is entitled to receive a number of Conversion
Shares based upon the Base Share Price regardless of whether the Holder
accurately refers to the Base Share Price in the Notice of Conversion.
c) Pro Rata Distributions. If the Company, at any time while Notes
are outstanding, shall distribute to all holders of Common Stock (and not
to Holders) evidences of its indebtedness or assets or rights or warrants
to subscribe for or purchase any security, then in each such case the
Conversion Price shall be determined by multiplying such Conversion Price
in effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of which
the denominator shall be the VWAP determined as of the record date
mentioned above, and of which the numerator shall be such VWAP on such
record date less the then fair market value at such record date of the
portion of such assets or evidence of indebtedness so distributed
applicable to one outstanding share of the Common Stock as determined by
the Board of Directors in good faith. In either case the adjustments shall
be described in a statement provided to the Holders of the portion of
assets or evidences of indebtedness so distributed or such subscription
rights applicable to one share of Common Stock. Such adjustment shall be
made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
d) Other Adjustments. In addition to the other adjustments set forth
in this Section 5, in the event that the Company fails to satisfy all of
the Special Adjustment Provisions on or before the 320th day following the
Closing Date (or the next Business Day if such 320th day is not a Business
Day), on such 320th day the Conversion Price shall be reset to the lower
of: (i) the initial Conversion Price; (ii) the closing bid price of the
Common Stock on the 320th day; and (iii) the VWAP for the twenty Trading
Days immediately prior to the 320th day. The Company acknowledges that any
reset of the Conversion Price of the Note in accordance this Section 5(d)
may cause a reset of other Notes issued pursuant to the Purchase
Agreement.
e) Calculations. All calculations under this Section 5 shall be made
to the nearest cent or the nearest 1/100th of a share, as the case may be.
The number of shares of Common Stock outstanding at any given time shall
not includes shares of Common Stock owned or held by or for the account of
the Company, and the description of any such shares of Common Stock shall
be considered on issue or sale of Common Stock. For purposes of this
Section 5, the number of shares of Common Stock deemed to be issued and
outstanding as of a given date shall be the sum of the number of shares of
Common Stock (excluding treasury shares, if any) issued and outstanding.
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f) Notice to Holders.
i. Adjustment to Conversion Price. Whenever the Conversion
Price is adjusted pursuant to any of this Section 5, the Company
shall promptly mail to each Holder a notice setting forth the
Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment. If the Company
issues a variable rate security, despite the prohibition thereon in
the Purchase Agreement, the Company shall be deemed to have issued
Common Stock or Common Stock Equivalents at the lowest possible
conversion or exercise price at which such securities may be
converted or exercised in the case of a Variable Rate Transaction
(as defined in the Purchase Agreement), or the lowest possible
adjustment price in the case of an MFN Transaction (as defined in
the Purchase Agreement).
ii. Notice to Allow Conversion by Holder. If (A) the Company
shall declare a dividend (or any other distribution) on the Common
Stock; (B) the Company shall declare a special nonrecurring cash
dividend on or a redemption of the Common Stock; (C) the Company
shall authorize the granting to all holders of the Common Stock
rights or warrants to subscribe for or purchase any shares of
capital stock of any class or of any rights; (D) the approval of any
stockholders of the Company shall be required in connection with any
reclassification of the Common Stock, any consolidation or merger to
which the Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, of any compulsory
share exchange whereby the Common Stock is converted into other
securities, cash or property; (E) the Company shall authorize the
voluntary or involuntary dissolution, liquidation or winding up of
the affairs of the Company; then, in each case, the Company shall
cause to be filed at each office or agency maintained for the
purpose of conversion of the Notes, and shall cause to be mailed to
the Holders at their last addresses as they shall appear upon the
stock books of the Company, at least 20 calendar days prior to the
applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the
purpose of such dividend, distribution, redemption, rights or
warrants, or if a record is not to be taken, the date as of which
the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is expected
to become effective or close, and the date as of which it is
expected that holders of the Common Stock of record shall be
entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share
exchange; provided, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the
validity of the corporate action required to be specified in such
notice. Holders are entitled to convert Notes during the 20-day
period commencing the date of such notice to the effective date of
the event triggering such notice.
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iii. Fundamental Transaction. If, at any time while this Note
is outstanding, (A) the Company effects any merger or consolidation
of the Company with or into another Person, (B) the Company effects
any sale of all or substantially all of its assets in one or a
series of related transactions, (C) any tender offer or exchange
offer (whether by the Company or another Person) is completed
pursuant to which holders of Common Stock are permitted to tender or
exchange their shares for other securities, cash or property, or (D)
the Company effects any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is
effectively converted into or exchanged for other securities, cash
or property (in any such case, a "Fundamental Transaction"), then
upon any subsequent conversion of this Note, the Holder shall have
the right to receive, for each Conversion Share that would have been
issuable upon such conversion absent such Fundamental Transaction,
the same kind and amount of securities, cash or property as it would
have been entitled to receive upon the occurrence of such
Fundamental Transaction if it had been, immediately prior to such
Fundamental Transaction, the holder of one share of Common Stock
(the "Alternate Consideration"). For purposes of any such
conversion, the determination of the Conversion Price shall be
appropriately adjusted to apply to such Alternate Consideration
based on the amount of Alternate Consideration issuable in respect
of one share of Common Stock in such Fundamental Transaction, and
the Company shall apportion the Conversion Price among the Alternate
Consideration in a reasonable manner reflecting the relative value
of any different components of the Alternate Consideration. If
holders of Common Stock are given any choice as to the securities,
cash or property to be received in a Fundamental Transaction, then
the Holder shall be given the same choice as to the Alternate
Consideration it receives upon any conversion of this Note following
such Fundamental Transaction. To the extent necessary to effectuate
the foregoing provisions, any successor to the Company or surviving
entity in such Fundamental Transaction shall issue to the Holder a
new note consistent with the foregoing provisions and evidencing the
Holder's right to convert such note into Alternate Consideration.
The terms of any agreement pursuant to which a Fundamental
Transaction is effected shall include terms requiring any such
successor or surviving entity to comply with the provisions of this
paragraph (c) and insuring that this Note (or any such replacement
security) will be similarly adjusted upon any subsequent transaction
analogous to a Fundamental Transaction.
iv. Exempt Issuance. Notwithstanding the foregoing, no
adjustment will be made under this Section 5 in respect of an Exempt
Issuance.
Section 6. Monthly Redemption
a) Monthly Redemption. Beginning February 2007, on each Monthly
Redemption Date the Company shall redeem the Holder's Monthly Redemption
Amount plus accrued but unpaid interest, the sum of all liquidated damages
and any other amounts then owing to such Holder in respect of the Note.
The Monthly Redemption Amount due on each Monthly Redemption Date shall be
paid in cash; provided, however, as to any Monthly Redemption and upon 10
Trading Days' prior written irrevocable notice, in lieu of a cash
redemption payment, the Company may elect to pay 100% of a Monthly
Redemption in Conversion Shares based on a conversion price equal to 85%
of the average of the 10 consecutive VWAPs immediately prior to the
applicable Monthly Redemption Date (subject to adjustment for any stock
dividend, stock split, stock combination or other similar event affecting
the Common Stock during such 10 Trading Day period) (the "Monthly
Conversion Price"); provided, however, that the Company may not pay the
Monthly Redemption Amount in Conversion Shares unless, on the Monthly
Redemption Date and during the 20 Trading Day period immediately prior to
the Monthly Redemption Date, the Equity Conditions have been satisfied and
the payment in shares of Common Stock would not exceed 25% of the volume
for any of the previous 10 Trading Days. The Holder may convert, pursuant
to Section 4(a), any principal amount of the Note subject to a Monthly
Redemption at any time prior to the date that the Monthly Redemption
Amount and all amounts owing thereon are due and paid in full. Any
principal amount of Note converted during any 20 day period until the date
the Monthly Redemption Amount is paid shall be first applied to the
principal amount subject to the Monthly Redemption and such Holder's cash
payment of the Monthly Redemption Amount on such Monthly Redemption Date
shall be reduced accordingly, and any remaining principal amount so
converted shall be applied against the next principal scheduled to be
repaid. The Company covenants and agrees that it will honor all Notice of
Conversions tendered up until such amounts are paid in full. The Company's
determination to pay a Monthly Redemption in cash or shares of Common
Stock shall be applied ratably to all Holders based on their initial
purchases of Notes pursuant to the Purchase Agreement. Anything to the
contrary notwithstanding, if the Company pays a Monthly Redemption in cash
(whether by election or inability to satisfy the conditions necessary to
pay in Conversion Shares), such Monthly Redemption shall be made at 102%
of the amount due.
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b) Redemption Procedure. The payment of cash and/or issuance of
Common Stock, as the case may be, pursuant to a Monthly Redemption shall
be made on the Monthly Redemption Date. If any portion of the cash payment
for a Monthly Redemption shall not be paid by the Company by the
respective due date, interest shall accrue thereon at the rate of 18% per
annum (or the maximum rate permitted by applicable law, whichever is less)
until the payment of the Monthly Redemption Amount, plus all amounts owing
thereon is paid in full. Alternatively, if any portion of the Monthly
Redemption Amount remains unpaid after such date, the Holders subject to
such redemption may elect, by written notice to the Company given at any
time thereafter, to invalidate ab initio such redemption, notwithstanding
anything herein contained to the contrary.
Section 7. Negative Covenants. So long as any portion of this Note is
outstanding, the Company will not and will not permit any of its Subsidiaries to
directly or indirectly:
a) enter into, create, incur, assume or suffer to exist any
indebtedness or liens of any kind, on or with respect to any of its
property or assets now owned or hereafter acquired or any interest therein
or any income or profits therefrom that is senior to, subordinated to or
pari passu with, in any respect, the Company's obligations under the
Notes;
b) amend its certificate of incorporation, bylaws or to her charter
documents so as to adversely affect any rights of the Holder;
c) repay, repurchase or offer to repay, repurchase, make any payment
in respect of or otherwise acquire any of its Common Stock, Preferred
Stock, or other equity securities other than as to the Conversion Shares
to the extent permitted or required under the Transaction Documents or as
otherwise permitted by the Transaction Documents;
d) engage in any transactions with any officer, director, employee
or any affiliate of the Company, including any contract, agreement or
other arrangement providing for the furnishing of services to or by,
providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or,
to the knowledge of the Company, any entity in which any officer,
director, or any such employee has a substantial interest or is an
officer, director, trustee or partner, in each case in excess of $10,000
other than (i) for payment of salary or consulting fees for services
rendered, (ii) reimbursement for expenses incurred on behalf of the
Company and (iii) for other employee benefits, including stock option
agreements under any stock option plan of the Company; or
e) create or acquire any Subsidiary after the date hereof unless (i)
such Subsidiary is a wholly-owned Subsidiary of the Company and (ii) such
Subsidiary becomes party to the Security Agreement and the Subsidiary
Guaranty (either by executing a counterpart thereof or an assumption or
joinder agreement in respect thereof) and, to the extent required by the
Purchaser, satisfied each condition of this Agreement and the Transaction
Documents as if such Subsidiary were a Subsidiary on the Closing Date;
14 of 22
f) enter into any agreement with any holder of the Company's
securities without the prior written consent of the Holder;
g) authorize or approve any reverse stock split of the Common Stock;
or
h) enter into any agreement with respect to any of the foregoing.
Section 8. Events of Default.
a) "Event of Default", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment,
decree or order of any court, or any order, rule or regulation of any
administrative or governmental body):
i. any default in the payment of (A) the principal of amount
of any Note, or (B) interest (including Late Fees) on, or liquidated
damages in respect of, any Note, in each case free of any claim of
subordination, as and when the same shall become due and payable
(whether on a Conversion Date or the Maturity Date or by
acceleration or otherwise) which default, solely in the case of an
interest payment or other default under clause (B) above, is not
cured, within 3 Trading Days;
ii. the Company shall fail to observe or perform any other
covenant or agreement contained in this Note or any of the other
Transaction Documents (other than a breach by the Company of its
obligations to deliver shares of Common Stock to the Holder upon
conversion which breach is addressed in clause (xii) below) which
failure is not cured, if possible to cure, within the earlier to
occur of (A) 5 Trading Days after notice of such default sent by the
Holder or by any other Holder and (B) 10 Trading Days after the
Company shall become or should have become aware of such failure;
iii. a default or event of default (subject to any grace or
cure period provided for in the applicable agreement, document or
instrument) shall occur under (A) any of the Transaction Documents
other than the Notes, or (B) any other material agreement, lease,
document or instrument to which the Company or any Subsidiary is
bound, which default, solely in the case of a default under clause
(B) above, is not cured, within 10 Trading Days;
iv. any representation or warranty made herein, in any other
Transaction Document, in any written statement pursuant hereto or
thereto, or in any other report, financial statement or certificate
made or delivered to the Holder or any other holder of Notes shall
be untrue or incorrect in any material respect as of the date when
made or deemed made;
v. (i) the Company or any of its Subsidiaries shall commence,
or there shall be commenced against the Company or any such
Subsidiary, a case under any applicable bankruptcy or insolvency
laws as now or hereafter in effect or any successor thereto, or the
Company or any Subsidiary commences any other proceeding under any
reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the
Company or any Subsidiary thereof or (ii) there is commenced against
the Company or any Subsidiary thereof any such bankruptcy,
insolvency or other proceeding which remains undismissed for a
period of 60 days; or (iii) the Company or any Subsidiary thereof is
adjudicated by a court of competent jurisdiction insolvent or
bankrupt; or any order of relief or other order approving any such
case or proceeding is entered; or (iv) the Company or any Subsidiary
thereof suffers any appointment of any custodian or the like for it
or any substantial part of its property which continues undischarged
or unstayed for a period of 60 days; or (v) the Company or any
Subsidiary thereof makes a general assignment for the benefit of
creditors; or (vi) the Company shall fail to pay, or shall state
that it is unable to pay, or shall be unable to pay, its debts
generally as they become due; or (vii) the Company or any Subsidiary
thereof shall call a meeting of its creditors with a view to
arranging a composition, adjustment or restructuring of its debts;
or (viii) the Company or any Subsidiary thereof shall by any act or
failure to act expressly indicate its consent to, approval of or
acquiescence in any of the foregoing; or (ix) any corporate or other
action is taken by the Company or any Subsidiary thereof for the
purpose of effecting any of the foregoing;
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vi. the Company or any Subsidiary shall default in any of its
obligations under any mortgage, credit agreement or other facility,
indenture agreement, factoring agreement or other instrument under
which there may be issued, or by which there may be secured or
evidenced any indebtedness for borrowed money or money due under any
long term leasing or factoring arrangement of the Company in an
amount exceeding $50,000, whether such indebtedness now exists or
shall hereafter be created and such default shall result in such
indebtedness becoming or being declared due and payable prior to the
date on which it would otherwise become due and payable;
vii. the Common Stock shall not be eligible for quotation on
or quoted for trading on a Trading Market and shall not again be
eligible for and quoted or listed for trading thereon within five
Trading Days;
viii. the Company shall redeem or repurchase more than a de
minimis number of its outstanding shares of Common Stock or other
equity securities of the Company (other than redemptions of
Conversion Shares and repurchases of shares of Common Stock or other
equity securities of departing officers and directors of the
Company; provided such repurchases shall not exceed $50,000, in the
aggregate, for all officers and directors during the term of this
Note);
ix. a Registration Statement shall not have been declared
effective by the Commission on or prior to the 210th calendar day
after the Closing Date;
x. if, during the Effectiveness Period (as defined in the
Registration Rights Agreement), the effectiveness of the
Registration Statement lapses for any reason or the Holder shall not
be permitted to resell Registrable Securities (as defined in the
Registration Rights Agreement) under the Registration Statement, in
either case, for more than 10 consecutive Trading Days or 15
non-consecutive Trading Days during any 12 month period; provided,
however, that in the event that the Company is negotiating a merger,
consolidation, acquisition or sale of all or substantially all of
its assets or a similar transaction and in the written opinion of
counsel to the Company, the Registration Statement, would be
required to be amended to include information concerning such
transactions or the parties thereto that is not available or may not
be publicly disclosed at the time, the Company shall be permitted an
additional 10 consecutive Trading during any 12 month period
relating to such an event;
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xi. an Event (as defined in the Registration Rights Agreement)
shall not have been cured to the satisfaction of the Holder prior to
the expiration of thirty days from the Event Date (as defined in the
Registration Rights Agreement) relating thereto (other than an Event
resulting from a failure of an Registration Statement to be declared
effective by the Commission on or prior to the Effectiveness Date
(as defined in the Registration Rights Agreement), which shall be
covered by Section 8(a)(ix);
xii. the Company shall fail for any reason to deliver
certificates to a Holder prior to the fifth Trading Day after a
Conversion Date pursuant to and in accordance with Section 4(d) or
the Company shall provide notice to the Holder, including by way of
public announcement, at any time, of its intention not to comply
with requests for conversions of any Notes in accordance with the
terms hereof; or
xiii. the Company shall fail for any reason to pay in full the
amount of cash due pursuant to a Buy-In within 5 Trading Days after
notice therefor is delivered hereunder or shall fail to pay all
amounts owed on account of an Event of Default within five days of
the date due. i.
b) Remedies Upon Event of Default. If any Event of Default occurs,
the full principal amount of this Note, together with interest and other
amounts owing in respect thereof, to the date of acceleration shall
become, at the Holder's election, immediately due and payable in cash. The
aggregate amount payable upon an Event of Default shall be equal to the
Mandatory Prepayment Amount. Commencing 5 days after the occurrence of any
Event of Default that results in the eventual acceleration of this Note,
the interest rate on this Note shall accrue at the rate of 18% per annum,
or such lower maximum amount of interest permitted to be charged under
applicable law. All Notes for which the full Mandatory Prepayment Amount
hereunder shall have been paid in accordance herewith shall promptly be
surrendered to or as directed by the Company. The Holder need not provide
and the Company hereby waives any presentment, demand, protest or other
notice of any kind, and the Holder may immediately and without expiration
of any grace period enforce any and all of its rights and remedies
hereunder and all other remedies available to it under applicable law.
Such declaration may be rescinded and annulled by Holder at any time prior
to payment hereunder and the Holder shall have all rights as a Note holder
until such time, if any, as the full payment under this Section shall have
been received by it. No such rescission or annulment shall affect any
subsequent Event of Default or impair any right consequent thereon.
Section 9. Miscellaneous.
a) Notices. Any and all notices or other communications or
deliveries to be provided by the Holders hereunder, including, without
limitation, any Notice of Conversion, shall be in writing and delivered
personally, by facsimile, sent by a nationally recognized overnight
courier service, addressed to the Company, at the address set forth above,
facsimile number 603-742-0005, Attn: Christopher LeClerc, Chief Executive
Officer, or such other address or facsimile number as the Company may
specify for such purposes by notice to the Holders delivered in accordance
with this Section. Any and all notices or other communications or
deliveries to be provided by the Company hereunder shall be in writing and
delivered personally, by facsimile, sent by a nationally recognized
overnight courier service addressed to each Holder at the facsimile
telephone number or address of such Holder appearing on the books of the
Company, or if no such facsimile telephone number or address appears, at
the principal place of business of the Holder. Any notice or other
communication or deliveries hereunder shall be deemed given and effective
on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section prior to 5:30 p.m. (New York City time), (ii)
the date after the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified in
this Section later than 5:30 p.m. (New York City time) on any date and
earlier than 11:59 p.m. (New York City time) on such date, (iii) the
second Business Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (iv) upon actual receipt by the
party to whom such notice is required to be given.
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b) Absolute Obligation. Except as expressly provided herein, no
provision of this Note shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of,
interest and liquidated damages (if any) on, this Note at the time, place,
and rate, and in the coin or currency, herein prescribed. This Note is a
direct debt obligation of the Company. This Note ranks pari passu with all
other Notes now or hereafter issued under the terms set forth herein
c) Lost or Mutilated Note. If this Note shall be mutilated, lost,
stolen or destroyed, the Company shall execute and deliver, in exchange
and substitution for and upon cancellation of a mutilated Note, or in lieu
of or in substitution for a lost, stolen or destroyed Note, a new Note for
the principal amount of this Note so mutilated, lost, stolen or destroyed
but only upon receipt of evidence of such loss, theft or destruction of
such Note, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
d) Security Interest. This Note is a direct debt obligation of the
Company and, pursuant to the Security Agreement is secured by a first
priority perfected security interest in all of the assets of the Company
for the benefit of the Holders.
e) Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Note shall be governed by
and construed and enforced in accordance with the internal laws of the
State of New York, without regard to the principles of conflicts of law
thereof. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated
by any of the Transaction Documents (whether brought against a party
hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced in the state and federal courts
sitting in the City of New York, Borough of Manhattan (the "New York
Courts"). Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein (including with respect to the enforcement of
any of the Transaction Documents), and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it
is not personally subject to the jurisdiction of any such court, or such
New York Courts are improper or inconvenient venue for such proceeding.
Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or overnight
delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Note and agrees that such service
shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any
right to serve process in any manner permitted by law. Each party hereto
hereby irrevocably waives, to the fullest extent permitted by applicable
law, any and all right to trial by jury in any legal proceeding arising
out of or relating to this Note or the transactions contemplated hereby.
If either party shall commence an action or proceeding to enforce any
provisions of this Note, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys fees
and other costs and expenses incurred with the investigation, preparation
and prosecution of such action or proceeding.
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f) Waiver. Any waiver by the Company or the Holder of a breach of
any provision of this Note shall not operate as or be construed to be a
waiver of any other breach of such provision or of any breach of any other
provision of this Note. The failure of the Company or the Holder to insist
upon strict adherence to any term of this Note on one or more occasions
shall not be considered a waiver or deprive that party of the right
thereafter to insist upon strict adherence to that term or any other term
of this Note. Any waiver must be in writing.
g) Severability. If any provision of this Note is invalid, illegal
or unenforceable, the balance of this Note shall remain in effect, and if
any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances. If
it shall be found that any interest or other amount deemed interest due
hereunder violates applicable laws governing usury, the applicable rate of
interest due hereunder shall automatically be lowered to equal the maximum
permitted rate of interest. The Company covenants (to the extent that it
may lawfully do so) that it shall not at any time insist upon, plead, or
in any manner whatsoever claim or take the benefit or advantage of, any
stay, extension or usury law or other law which would prohibit or forgive
the Company from paying all or any portion of the principal of or interest
on this Note as contemplated herein, wherever enacted, now or at any time
hereafter in force, or which may affect the covenants or the performance
of this indenture, and the Company (to the extent it may lawfully do so)
hereby expressly waives all benefits or advantage of any such law, and
covenants that it will not, by resort to any such law, hinder, delay or
impeded the execution of any power herein granted to the Holder, but will
suffer and permit the execution of every such as though no such law has
been enacted.
h) Next Business Day. Whenever any payment or other obligation
hereunder shall be due on a day other than a Business Day, such payment
shall be made on the next succeeding Business Day.
i) Headings. The headings contained herein are for convenience only,
do not constitute a part of this Note and shall not be deemed to limit or
affect any of the provisions hereof.
j) Seniority. This Note is senior in right of payment to any and all
other indebtedness of the Company.
*********************
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IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed by a duly authorized officer as of the date first above indicated.
LISKA BIOMETRY, INC.
------------------------------
Name:
Title:
20 of 22
ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the 10% Senior
Secured Convertible Note of Liska Biometry, Inc., a Florida corporation (the
"Company"), due on May 31, 2009, into shares of common stock, no par value (the
"Common Stock"), of the Company according to the conditions hereof, as of the
date written below. If shares are to be issued in the name of a person other
than the undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as
reasonably requested by the Company in accordance therewith. No fee will be
charged to the holder for any conversion, except for such transfer taxes, if
any.
By the delivery of this Notice of Conversion the undersigned represents
and warrants to the Company that its ownership of the Common Stock does not
exceed the amounts determined in accordance with Section 13(d) of the Exchange
Act, specified under Section 4 of this Note.
The undersigned agrees to comply with the prospectus delivery
requirements under the applicable securities laws in connection with any
transfer of the aforesaid shares of Common Stock.
Conversion calculations:
Date to Effect Conversion:
Principal Amount of Notes to be Converted:
Payment of Interest in Common Stock __ yes __ no
If yes, $_____ of Interest Accrued on Account of
Conversion at Issue.
Number of shares of Common Stock to be issued:
Signature:
Name:
Address:
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Schedule 1
CONVERSION SCHEDULE
The 10% Senior Secured Convertible Notes due on May 31, 2009, in the aggregate
principal amount of $____________ issued by Liska Biometry, Inc., a Florida
corporation. This Conversion Schedule reflects conversions made under Section 4
of the above referenced Note.
Dated:
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Aggregate Principal
Amount Remaining
Date of Conversion Subsequent to
(or for first entry, Original Conversion
Issue Date) Amount of Conversion (or original Company Attest
Principal Amount)
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